Dec 1 (Reuters) - Canadian Oil Sands Ltd set a 2016 capital expenditure budget that was 35 percent lower than what it expected to spend this year, becoming the latest North American energy company to further tighten its belt as oil prices slump.

Canadian Oil Sands said lower production costs at the Syncrude oil sands project - Canada’s largest single-source producer of synthetic oil - helped it cut its capex target to C$295 million ($221 million) for 2016 from C$451 million estimated for 2015.

The company, which owns about 37 percent of the Syncrude project, is facing a hostile bid from Suncor Energy Inc, which holds 12 percent of the project.

Canadian Oil Sands will explore options that give its shareholders a “fair value” for its assets, which is not offered by Suncor’s bid, Chief Executive Ryan Kubik said on a conference call on Tuesday.

“Syncrude’s ability to reduce costs and respond to the lower oil price environment is exceeding market expectations,” Kubik said in a statement.

As companies brace for a longer-than-expected slump in oil prices and adjust to the new reality of oil at near $40 per barrel, they are spending less on drilling and completing new wells and cutting vendor costs.

Canadian companies including Canadian Natural Resources Ltd have outlined smaller budgets for 2016, while top American shale producers such as Devon Energy Corp have released preliminary budgets that are sharply lower from 2015.

Canadian Oil Sands said even if West Texas Intermediate prices remained below $45 per barrel, it could “fully fund all costs, including capital expenditures and the current dividend.”

The company expects to generate C$338 million in free cash flow, based on the 2016 budget, which assumes production of 38.6 million barrels - about 10 percent higher than that estimated for 2015.

Syncrude is an important piece in Suncor’s C$4.3 billion bid for Canadian Oil Sands. If the bid succeeds, Suncor will gain control of nearly half of the project.

Suncor went hostile on Oct. 5. Two days later, Canadian Oil Sands adopted a poison pill, or shareholder rights plan. Regulators have granted Canadian Oil Sands’ shareholders an extra month to review the bid.

The company’s shares closed at C$8.56 on Monday. Up to Monday’s close, the stock had risen about 38 percent since Suncor went hostile. ($1 = C$1.33) (Reporting by Sneha Banerjee in Bengaluru; additional reporting by Tanvi Mehta; Editing by Sayantani Ghosh and Kirti Pandey)